- Lawrence Yun, Chief Economist for the National Association of Realtors, presented on the recovery of the housing market to normalcy. - Consumer confidence had reached awful lows but was improving, though unemployment remained high. Housing starts, sales and prices were stabilizing after the crisis and bust. - Inventories remained high but were decreasing as demand increased. Distressed loans were declining. The credit bubble that caused the crisis was now dead. - Economists expected a gradual increase in home prices over the next few years as the market recovered further toward normal levels and demand continued to outpace shrinking supply.

1. Recovery to Normalcy
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Annual Meetings
New Orleans, LA
November 5, 2010

2. Consumer Confidence on
Present Conditions: Awful
0
50
100
150
200
1980-Jan
1981-Apr
1982-Jul
1983-Oct
1985-Jan
1986-Apr
1987-Jul
1988-Oct
1990-Jan
1991-Apr
1992-Jul
1993-Oct
1995-Jan
1996-Apr
1997-Jul
1998-Oct
2000-Jan
2001-Apr
2002-Jul
2003-Oct
2005-Jan
2006-Apr
2007-Jul
2008-Oct
2010-Jan

3. Consumer Confidence on Future Conditions:
Not Good but Not as Bad
0
20
40
60
80
100
120
140
1980-Jan
1981-Apr
1982-Jul
1983-Oct
1985-Jan
1986-Apr
1987-Jul
1988-Oct
1990-Jan
1991-Apr
1992-Jul
1993-Oct
1995-Jan
1996-Apr
1997-Jul
1998-Oct
2000-Jan
2001-Apr
2002-Jul
2003-Oct
2005-Jan
2006-Apr
2007-Jul
2008-Oct
2010-Jan
9.6% unemployment rate,
but different confidence level

4. Business Spending Shows Weak Confidence
in Relation to Profits
200
700
1200
1700
2200
2700
2000-Q2
2000-Q4
2001-Q2
2001-Q4
2002-Q2
2002-Q4
2003-Q2
2003-Q4
2004-Q2
2004-Q4
2005-Q2
2005-Q4
2006-Q2
2006-Q4
2007-Q2
2007-Q4
2008-Q2
2008-Q4
2009-Q2
2009-Q4
2010-Q2
Corporate Profits
Business Investment
Business Investment = private fixed investment in GDP accounting
$ billion

5. REALTORS’ Home Value Expectation:
over the next 12 months
0%
10%
20%
30%
40%
50%
60%
70%
80% 2008-Oct
2008-Nov
2008-Dec
2009-Jan
2009-Feb
2009-Mar
2009-Apr
2009-May
2009-Jun
2009-Jul
2009-Aug
2009-Sep
2009-Oct
2009-Nov
2009-Dec
2010-Jan
2010-Feb
2010-Mar
2010-Apr
2010-May
2010-Jun
2010-Jul
2010-Aug
2010-Sep
Increase or Stable
Decrease

6. REALTOR Expectation vs Reality
Date % respondents saying prices will have
fallen at this time from 12 month prior
Case-Shiller price change
2009.10
51%
-7.3
2009.11
56%
-5.4
2009.12
60%
-3.1
2010.01
55%
-0.7
2010.02
54%
+0.7
2010.03
43% (minority say falling price)
+2.3 (price did not fall)
2010.04
35%
+3.8
2010.05
35%
+4.6
2010.06
36%
+4.2
2010.07
36%
+3.2

7. Government Spending (Confidence)
200
700
1200
1700
2200
2700
3200
3700
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Government Receipt
Government Outlay
$ billion

8. GDP Growing, but Without Vigor
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
1980-Q1
1981-Q2
1982-Q3
1983-Q4
1985-Q1
1986-Q2
1987-Q3
1988-Q4
1990-Q1
1991-Q2
1992-Q3
1993-Q4
1995-Q1
1996-Q2
1997-Q3
1998-Q4
2000-Q1
2001-Q2
2002-Q3
2003-Q4
2005-Q1
2006-Q2
2007-Q3
2008-Q4
2010-Q1
annualized % growth rate

9. U.S. Private Sector Job Gains
(863,000 from Jan. to Sep. 2010)
-1000
-500
0
500
1000
1500 1980-Jan
1981-Apr
1982-Jul
1983-Oct
1985-Jan
1986-Apr
1987-Jul
1988-Oct
1990-Jan
1991-Apr
1992-Jul
1993-Oct
1995-Jan
1996-Apr
1997-Jul
1998-Oct
2000-Jan
2001-Apr
2002-Jul
2003-Oct
2005-Jan
2006-Apr
2007-Jul
2008-Oct
2010-Jan
Month-to-month job gains in thousands

10. Total Payroll Jobs in the U.S.
(same as in 2000, but with 30 million more people)
124000
126000
128000
130000
132000
134000
136000
138000
140000 2000-Jan
2000-Jul
2001-Jan
2001-Jul
2002-Jan
2002-Jul
2003-Jan
2003-Jul
2004-Jan
2004-Jul
2005-Jan
2005-Jul
2006-Jan
2006-Jul
2007-Jan
2007-Jul
2008-Jan
2008-Jul
2009-Jan
2009-Jul
2010-Jan
2010-Jul

11. How Many Years to Get Job Market
Back to Normal?
Jobs added per month Assumed new jobs needed
for growing population per
month
How many years?
100,000 100,000 Treading water and
never back to normal
200,000 100,000 6.3 years
300,000 100,000 3.2 years
400,000 100,000 2.1 years

12. 3500
4000
4500
5000
Source: BLS
In thousands
Total Payroll Jobs in Michigan

13. 2000
2200
2400
2600
Source: BLS)
In thousands
Total Payroll Jobs in Washington D.C. Metro

14. Weekly 1st time Unemployment
Claims: Need to Fall Further
0
100
200
300
400
500
600
700
2000-Feb
2000-Jul
2000-Dec
2001-May
2001-Oct
2002-Mar
2002-Aug
2003-Jan
2003-Jun
2003-Nov
2004-Apr
2004-Sep
2005-Feb
2005-Jul
2005-Dec
2006-May
2006-Oct
2007-Mar
2007-Aug
2008-Jan
2008-Jun
2008-Nov
2009-Apr
2009-Sep
2010-Feb
2010-Jul
In thousands

15. Existing Home Sales (Closings)
3000000
3500000
4000000
4500000
5000000
5500000
6000000
6500000
7000000
7500000 2000-Feb
2000-Aug
2001-Feb
2001-Aug
2002-Feb
2002-Aug
2003-Feb
2003-Aug
2004-Feb
2004-Aug
2005-Feb
2005-Aug
2006-Feb
2006-Aug
2007-Feb
2007-Aug
2008-Feb
2008-Aug
2009-Feb
2009-Aug
2010-Feb
2010-Aug
Tax Credit Impact

16. New Home Sales (Contracts)
70
270
470
670
870
1070
1270
1470
2001-Feb
2001-Aug
2002-Feb
2002-Aug
2003-Feb
2003-Aug
2004-Feb
2004-Aug
2005-Feb
2005-Aug
2006-Feb
2006-Aug
2007-Feb
2007-Aug
2008-Feb
2008-Aug
2009-Feb
2009-Aug
2010-Feb
2010-Aug
Where is the
tax credit impact?

17. High Existing Home Inventory
0
2
4
6
8
10
12
14
2000-Feb
2000-Jun
2000-Oct
2001-Feb
2001-Jun
2001-Oct
2002-Feb
2002-Jun
2002-Oct
2003-Feb
2003-Jun
2003-Oct
2004-Feb
2004-Jun
2004-Oct
2005-Feb
2005-Jun
2005-Oct
2006-Feb
2006-Jun
2006-Oct
2007-Feb
2007-Jun
2007-Oct
2008-Feb
2008-Jun
2008-Oct
2009-Feb
2009-Jun
2009-Oct
2010-Feb
2010-Jun
Months Supply
Total homes on the market
(in millions)

18. Distressed Loans and Shadow Inventory
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2006/Q1
2006/Q2
2006/Q3
2006/Q4
2007/Q1
2007/Q2
2007/Q3
2007/Q4
2008/Q1
2008/Q2
2008/Q3
2008/Q4
2009/Q1
2009/Q2
2009/Q3
2009/Q4
Thousands
Mortgage Payments
Past Due 30-59 Days
Mortgage Payments
Past Due 90+ Days
Mortgage
Foreclosures Started
Mortgage
Foreclosure Inventory
Bad loans are nearly always made in good
times. But recently originated loans are
performing very well.

19. Newly Built Home Inventory and
Its Shadow Inventory
0
100
200
300
400
500
600
700 2000-Feb
2000-Jul
2000-Dec
2001-May
2001-Oct
2002-Mar
2002-Aug
2003-Jan
2003-Jun
2003-Nov
2004-Apr
2004-Sep
2005-Feb
2005-Jul
2005-Dec
2006-May
2006-Oct
2007-Mar
2007-Aug
2008-Jan
2008-Jun
2008-Nov
2009-Apr
2009-Sep
2010-Feb
2010-Jul

20. Depressed Housing Starts
0
500
1,000
1,500
2,000
2,500
In thousands

21. Return to Normalcy
• Unprecedented Boom and Bust: 2000 to 2010
• Sales Boomed and Retreated
• Prices Overshot and Corrected
• Fundamentals Back to Justifiable Levels
• Long-standing Housing Policy still in place
• Credit Market Bubble … out the window

22. 22
Existing-Home Sales
In million units

23. 23
Home Sale to Jobs

24. National Median Home Price
0
50,000
100,000
150,000
200,000
250,000
Source: NAR

25. Metro Median Home Price
0
50
100
150
200
250
300
350
$ thousand
Source: NAR
Las Vegas
Columbia

26. National Median Home Price Stabilizing
(Combination of price change and type of homes that are selling)
100000
120000
140000
160000
180000
200000
220000
240000
260000
280000
2001-Feb
2001-May
2001-Aug
2001-Nov
2002-Feb
2002-May
2002-Aug
2002-Nov
2003-Feb
2003-May
2003-Aug
2003-Nov
2004-Feb
2004-May
2004-Aug
2004-Nov
2005-Feb
2005-May
2005-Aug
2005-Nov
2006-Feb
2006-May
2006-Aug
2006-Nov
2007-Feb
2007-May
2007-Aug
2007-Nov
2008-Feb
2008-May
2008-Aug
2008-Nov
2009-Feb
2009-May
2009-Aug
2009-Nov
2010-Feb
2010-May
2010-Aug
New Home Price
Existing Home Price

27. Other Home Price Measurements also Showing
Price Stabilization

28. Home Price-to-Income Ratio
(No Bubble)
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
Source: NAR

29. Home Price and Construction Cost
(No Bubble)
80
90
100
110
120
130
140
150
160
170
2000-Feb
2000-May
2000-Aug
2000-Nov
2001-Feb
2001-May
2001-Aug
2001-Nov
2002-Feb
2002-May
2002-Aug
2002-Nov
2003-Feb
2003-May
2003-Aug
2003-Nov
2004-Feb
2004-May
2004-Aug
2004-Nov
2005-Feb
2005-May
2005-Aug
2005-Nov
2006-Feb
2006-May
2006-Aug
2006-Nov
2007-Feb
2007-May
2007-Aug
2007-Nov
2008-Feb
2008-May
2008-Aug
2008-Nov
2009-Feb
2009-May
NAR Price Index
PPI Residential Construction Cost Index

30. Long Standing Housing Policy
• Mortgage Interest Deduction
– If eliminated, there will be about a 15% hit to home values
– Massive wealth destruction for property owners who have
saved and saved (in many cases to pass it on to the next
generation)
• FHA
– Self-financing without ever needing taxpayer funds (as of
yet)
• Fannie and Freddie
– Made mistakes and need to be restructured

31. Credit Bubble Dead
Subprime, Alt-A, Home Equity Mortgage Origination
0
200
400
600
800
1,000
1,200
1,400
1,600
2003 2005-2006 2009-2010
Source: NAR estimate based on Inside Mortgage Finance data
$ billion

32. 1995
1995
1998
1998
2001
2001
2004
2004
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Renter Homeowner
2007
20072007
2007
Long-Term Path to Self Reliance May be Helped from
Long-Term Housing Wealth Gains
Source: Federal Reserve, NAR estimate for 2010
Median Family Net Worth
2010
2010

33. Compelling Affordability
Monthly Mortgage to buy a Median Priced Home
2005 Q2 2010 Q2
San Diego $ 2,833 $ 1,564
Miami $ 1,726 $ 853
Milwaukee $ 1,014 $ 797
Kansas City $ 735 $ 600

34. Economists Expect Price Increases in Upcoming Years
• Macromarkets, a firm associated with Professor Robert Shiller, surveys
about 100 economists about home price outlook.
• The consensus forecast as of August 2010 (which can be found from
Macromarkets or from news media stories such as Wall Street Journal)
are for
• 0.78% price increase in 2011
• 2.43% price increase in 2012
• 3.20% price increase in 2013
• 3.69% price increase in 2014
• No forecast for 2015 and beyond

35. 10-Year Treasury impacted by
Inflationary Expectations
-4
-2
0
2
4
6
8
10
12
14
16
18
1971-May
1972-Sep
1974-Jan
1975-May
1976-Sep
1978-Jan
1979-May
1980-Sep
1982-Jan
1983-May
1984-Sep
1986-Jan
1987-May
1988-Sep
1990-Jan
1991-May
1992-Sep
1994-Jan
1995-May
1996-Sep
1998-Jan
1999-May
2000-Sep
2002-Jan
2003-May
2004-Sep
2006-Jan
2007-May
2008-Sep
2010-Jan
%
CPI Inflation
10-year Treasury Yield

36. Inflationary Pressure ?
Indicator % change from one year ago
Consumer Price Index (CPI) 1.1%
Housing Rent Component CPI 0.2% (but heading higher?)
Producer Price Index (Finished Product) 4.0%
Producer Price Index (Intermediate Product) 5.5%
Producer Price Index (Crude Product) 20.2%
Commodity: Coffee, Cotton, Wheat, Meat Very high
Gold Price Record High Price

37. CPI-Housing Rent Inflation
(Home price is not part of CPI because of asset/investment aspect)
-1
0
1
2
3
4
5
2005-Jan
2005-Apr
2005-Jul
2005-Oct
2006-Jan
2006-Apr
2006-Jul
2006-Oct
2007-Jan
2007-Apr
2007-Jul
2007-Oct
2008-Jan
2008-Apr
2008-Jul
2008-Oct
2009-Jan
2009-Apr
2009-Jul
2009-Oct
2010-Jan
2010-Apr
2010-Jul
%
Housing Rent Inflation

38. Baseline Outlook
• Moderate GDP Expansion 2 to 2.5% in the next 2
years (historical average is 3%)
• 1.5 million annual job additions in the next 2
years
• Unemployment rate of 8% in 2012 … and normal
6% in 2015

39. Baseline Outlook Cont’d
• Mortgage Rates rising to 5.0% in 2011 and 5.9% in 2012
• People fussing about home values could miss out on low rates
• Home values – no meaningful change in the national price in the
next 2 years
• Home sales to be choppy, but overall improving, in line with job
growth … 5.2 million in 2011 (up from 4.8 m in 2010, but same as in
2000)
• Affordability conditions are too compelling
• There may be some pent-up demand. 30 million additional people
compared to 2000, but same number of home sales as in 2000.

40. Alternative Possibility
• High inflation: people desire tangible investment like real
estate, but interest rate will be higher
• Deflation: people hold back for better price, which holds back
economy
• Budget deficit tipping point: higher interest rate and sharp cut
backs in standards of living
• Sharp 4% to 5% GDP growth … release of pent-up housing
demand (30 million more people today versus 2000 when
home sales were similar) … surprisingly higher home sales and
home prices

41. Virtuous or Vicious Cycle?
• Home values stabilizing scenario
– Foreclosures steadily fall
– Strategic default lessens and underwater homeowners become
hopeful
– FHA and Fannie/Freddie finances improve (will need less
taxpayer funds)
– Consumer spending opens up
– Home value stabilize further or even begin to rise …
– Self-sustaining normal growth rates in sales and prices
• Home values fall meaningfully … ugly scenario